Report finds APP and APRIL violating zero-deforestation policies with wood purchases from Djarum Group concessions in East Kalimantan

Paper giants APP and APRIL might have defaulted on their zero-deforestation commitments, a new report by a coalition of NGOs says.

The report alleges APP and APRIL purchased wood from companies clearing natural forest in Indonesian Borneo.

Both companies have denied the allegations, with APRIL saying the wood was sourced from non-high conservation value (HCV) areas, and APP saying it received the wood after an administrative lapse and had since quarantined the shipment.

JAKARTA — Paper giants Asia Pulp & Paper (APP) and Asia Pacific Resources International Holdings Limited (APRIL) are under fire for allegedly purchasing wood from plantation companies clearing rainforest in Kalimantan, the Indonesian part of Borneo island, which if true constitutes a violation of their landmark no-deforestation policies.

A new report by a coalition of NGOs has found that both companies purchased wood from timber producer PT Fajar Surya Swadaya, which has cleared nearly 200 square kilometers (77 square miles) of natural forest in its 615 square kilometers (237 square miles) of concession in East Kalimantan province since 2013.

The report also found that APP purchased wood from another forestry company, PT Silva Rimba Lestari, which has cleared more than 120 square kilometers (46 square miles) of natural forest in its 880 square kilometers (340 square miles) of concession in East Kalimantan during the same period.

Both PT Fajar Surya Swadaya and PT Silva Rimba Lestari are majority-owned through holding companies by members of the Hartono family, founders of tobacco giant the Djarum Group, according to official company profiles provided by the government.

The NGOs reached their conclusion after combing through the Indonesian government’s wood utilization reports, which contained details of the source of the wood that companies purchase.

“When we looked at the reports, we found companies that were not listed by APP as independent suppliers nor first-party mills,” Syahrul Fitra from the NGO Auriga, a member of the coalition, told Mongabay. “And then we traced the activities of the companies, and we found deforestation happening inside their concessions.”

Meanwhile, 14,726 cubic meters, or around 500 truckloads, of wood, and 1,151 cubic meters of natural forest wood obtained through land clearing from PT Silva Rimba Lestari entered PT Sarana Bina Semesta Alam, which was identified by a previous report by the coalition as APP’s wood chip mill in East Kalimantan.

As for PT Silva Rimba Lestari, 128 square kilometers (49 square miles) of natural forest was cleared in its concession during the same period. As a result, only 355 square kilometers (137 square miles) of intact natural forest remained in the concession, representing 40 percent of concession area.

On top of the analysis from the satellite imagery, the coalition also looked at government reports of timber forestry revenue payments, which record tax payments from pulpwood companies.

According to the government reports, PT Fajar Surya Swadaya and PT Silva Rimba Lestari harvested 230,000 cubic meters of both small-diameter pulp logs and large-diameter timber from natural forests, including Borneo ironwood.

This particular wood species is listed as vulnerable on the International Union for Conservation of Nature (IUCN) Red List of Threatened Species and is banned for export from Indonesia.

Auriga’s Syahrul said he was baffled by the fact that both companies blatantly cut down natural forest and yet still paid taxes to the government.

“What we can’t comprehend is how the government accepted tax payments from natural forest wood obtained through clearing,” he said. “This shows how our tax system doesn’t analyze any data submitted by companies. So when there is clearing of natural forest, the system doesn’t detect it.”

Deforestation in the concessions of PT Fajar Surya Swadaya, from 2001-2012, in purple, and from 2013-2017, in red. Sources: Forest cover from Indonesia’s Ministry of Environment and Forestry land cover maps from 2000 and 2015, tree cover loss from Hansen et al. 2013 with updates for 2017 from Global Forest Change.

Zero-deforestation commitments questioned

APP and APRIL control a combined land area of 36,000 square kilometers (13,900 square miles) and 80 percent of Indonesia’s pulp production.

In the past, both APP and APRIL were routinely targeted by green groups for unsustainable forestry practices that resulted in forest destruction and conflicts with local communities. Following decades of such practices, both companies tried to regain market acceptance and bolster their reputations by announcing sustainability policies that include commitments to zero deforestation and respect for human rights.

APP launched its “Forest Conservation Policy” in 2013, which pledges that “APP and its suppliers will only develop areas that are not forested, as identified through independent HCVF [high conservation-value forest] and HCS [high carbon stock] assessments.

APRIL, through its parent conglomerate Royal Golden Eagle (RGE), followed suit in 2015 by adopting its own sustainability policy called “Forestry, Fiber, Pulp & Paper Sustainability Framework,” which prominently includes a commitment to “No Deforestation.”

This commitment applies to all RGE companies worldwide and to all third-party fiber, wood and pulp suppliers to RGE companies.

Based on the coalition of NGOs’ report, Syahrul said it appeared that both APP and APRIL had begun to default on their no-deforestation commitments.

“We’re questioning the commitments of these big groups, especially with the fact that they failed to be transparent on their suppliers,” he said.

Syahrul said this was not the first time APP was accused of violating its no-deforestation policy.

Another report recently released by the coalition alleged that PT Muara Sungai Landak, a forestry concession holder in West Kalimantan province linked to APP’s parent conglomerate, the Sinar Mas Group, had also cleared large areas of natural forest since APP made its zero-deforestation commitment.

While APP has denied the allegation, a recent investigation by Mongabay has shown that both PT Muara Sungai Landak and the industry to which it has supplied wood have ownership and/or management links to Sinar Mas Forestry and SMART, a Sinar Mas palm oil company.

“So this is not the first time APP violated its own sustainability policy,” Syahrul said. “It means that they’re not serious in implementing their no-deforestation commitment.”

An acacia plantation in various stages of harvest. Image by Rhett A. Butler/Mongabay.

Hungry for wood fiber

Syahrul said APP might resort to purchasing wood sourced from deforestation because the company faced a fiber supply crunch driven by its mega-scale pulp and tissue mill in Ogan Komering Ilir (OKI) district, in South Sumatra province, which began operating in late 2016.

With pulp production capacity of 2.8 million tons per year, the OKI mill has increased APP’s overall fiber requirement in Indonesia by nearly 75 percent to 31 million cubic meters of wood annually.

APP has made repeated assurances that the company has sufficient plantation resources to meet the demand for its pulp mills, even as the OKI mill ramps up its production. The Forest Trust has also assessed APP’s supply chain and concluded that the company would be able to meet all its fiber demand.

“They said they had enough supply, but what we found was that they sourced from companies that cut down wood from natural forest,” Syahrul said. “This is about the credibility of The Forest Trust as well because they have concluded that APP would be able to meet its demand [without violating its zero-deforestation policy].”

APP’s response

Both paper giants have denied the latest findings from the coalition, called the Anti-Forest-Mafia Coalition, which includes the NGOs Walhi, Pusaka, WWF Indonesia, Auriga, Woods & Wayside International, and Forest Peoples Programme.

APP said the allegations were unsubstantiated, with the coalition’s report containing factual errors and presenting incomplete information.

“APP is not engaged in deforestation, either directly, through companies owned by APP, or indirectly, through third parties,” the company told Mongabay. “Neither Silva Rimba Lestari nor Fajar Surya Swadaya are approved suppliers of fiber to APP.”

However, APP said the company did purchase a quantity of wood from PT Fajar Surya Swadaya because of an “administrative lapse.”

Last year, APP conducted a supplier evaluation and risk assessment (SERA) on PT Fajar Surya Swadaya to see if the latter could become a supplier of APP.

There are two parts in the evaluation process: desktop assessment and on-site assessment.

PT Fajar Surya Swadaya initially passed the desktop assessment. But before the on-site assessment was completed, a pilot shipment was already delivered to APP’s IKPP mill in Riau on Nov. 1, 2017.

“However, as the onsite assessment surfaced issues surrounding Fajar Surya Swadaya, the delivery was flagged and quarantined,” the company said. “To date, the shipment remains quarantined in IKPP’s log yard. No fiber from this shipment has entered APP’s production supply.”

And after the pilot shipment, APP said it decided to not approve PT Fajar Surya Swadaya as a supplier.

“When the onsite assessment was carried out, our assessors determined that there was a strong likelihood that the plantations were situated on HCS forest lands, and that natural forest clearance had taken place,” APP said. “As a result, the supplier was not approved.”

Syahrul said it was strange for APP to have missed PT Fajar Surya Swadaya’s deforestation practices when it conducted its desktop assessment of the company, questioning the effectiveness of the review process.

“The deforestation on Fajar Surya Swadaya’s concession from 2013 onward is evident from even a cursory glance at low-res satellite imagery, even by a non-GIS expert using Global Forest Watch,” he said. “Wouldn’t the desk study for SERA process then have picked up on this deforestation?”

APP said it didn’t use satellite imagery as part of its initial review. Instead, it uses Landsat data from the government. It can be hard to determine whether forest cover loss shown in Landsat is part of natural forest loss or more deliberate acts of natural forest conversion, according to APP.

“This is why SERA includes onsite assessment, so we can see the conditions on the ground and compare that to the declarations made by the potential supplier,” APP said.

Syahrul also questioned the vast quantity of wood delivered during the pilot shipment, which totaled around 800 truckloads of wood.

APP said such a quantity was common for a pilot shipment because it was intended to test a supplier’s ability to meet the logistical requirements.

“For context, while 24,863 m3 may sound like a lot of fiber, it is little more than a day’s worth of feedstock, depending on the density,” APP said.

APP said the pilot shipment was a costly mistake as the logs continue to sit in quarantine. The company said it had since taken steps to prevent future lapses.

“Since that time, the procurement process has been amended to require all SERA evaluations to be completed before trial shipments can be approved,” APP said.

As for PT Sarana Bina Semesta Alam, which the report said acquired fiber supply from PT Silva Rimba Lestari, APP denied owning or controlling the company.

But the coalition discovered that PT Sarana Bina Semesta Alam exported wood chips in 2016 and January 2017 to Gold East Trading Company and Hainan Jinhai Pulp & Paper Co., Ltd. The export to Gold East was worth $33.5 million, while the exports to Hainan Jinhai were valued at $6.1 million and $1.9 million.

According to Gold East’s website, the company is a sole agent for APP in Hong Kong and southern China. Meanwhile, Hainan Jinhai is a pulp and paper factory established by APP in China.

Furthermore, PT Sarana Bina Semesta Alam is linked to APP through a series of independent suppliers, according to the coalition’s previous report.

Pulp and paper plantation on peatland in Riau. Image by Rhett A. Butler/Mongabay.

APRIL’s response

APRIL, meanwhile, said that PT Fajar Surya Swadaya had been an open market supplier of plantation wood to the company since June 2017.

However, APRIL denied that the company had violated its own sustainability policy, saying the wood purchased from PT Fajar Surya Swadaya was sourced from non-high conservation value (HCV) areas.

APRIL said it reached the conclusion after conducting internal due diligence. During that process, the company found that PT Fajar Surya Swadaya had commissioned the Netherlands-based NGO Tropenbos International to conduct an HCV assessment of its concession in April 2015.

“Based on this, plantation development was done in non-HCV areas,” APRIL said in a statement to Mongabay.

APRIL said the development of PT Fajar Surya Swadaya’s plantations did not violate any community rights as appropriate procedures for resolving land conflicts had been put in place, including the existence of an external grievance mechanism; adequate fire prevention program; and community development programs.

Responding to APRIL’s statement, the coalition demanded APRIL provide evidence to back up its claim that the wood was sourced from non-HCV areas.

“APRIL claimed that Tropenbos International had completed an HCV assessment for the concession,” the coalition said. “This assessment, to the best of our knowledge, has not been made publicly available for civil society review. We request that it now be made public.”

The coalition also said APRIL had failed to mention whether the developed concession was high carbon stock (HCS) area — meaning viable natural forest — or non-HCS areas — meaning degraded land.

APRIL’s sustainability commitment states that APRIL and its suppliers will only develop areas that are not forested, as identified through independent peer-reviewed HCV and HCS assessments.

“Significantly, APRIL has not indicated that a HCS assessment was also completed for the concession,” the coalition said.

Correction, Aug. 27, 2018: A previous version of this article incorrectly said that APRIL purchased natural forest wood from PT Fajar Surya Swadaya. In fact, APRIL bought plantation wood from the company, which had cleared forest to make room for the plantation, according to the NGO report.